1. THE SEAMLESS LINK
The Union Budget 2026 has solidified India's stringent virtual digital asset (VDA) tax framework, a move that has intensified concerns within the domestic cryptocurrency ecosystem regarding liquidity and global competitiveness. The government's decision to retain the 30% flat tax on capital gains and the 1% Tax Deducted at Source (TDS) on transactions, alongside disallowing loss set-offs, represents a continuation of policies first introduced in Budget 2022. This policy stasis has disappointed the local industry, which had anticipated reforms to address persistent friction points and foster growth.
Unchanged Tax Burden Fuels Offshore Exodus
The steadfast maintenance of India's existing VDA tax structure is likely to further accelerate the migration of trading activity to international exchanges. Data released by crypto tax platform KoinX for Fiscal Year 2025 indicated a significant shift, with nearly 72.7% of Indian crypto trading volume migrating to offshore platforms. [cite:NEWS1 original data] This trend is intrinsically linked to the punitive regime, which includes a 30% capital gains tax and a 1% TDS, compounded by the inability to offset trading losses. Such conditions have notably compelled approximately half of users to pay capital gains tax despite incurring net losses, a situation that cost them around ₹180 crore. [cite:NEWS1 original data] The 1% TDS, while serving as a reporting mechanism, constituted a minimal 0.6% of total turnover on domestic exchanges, highlighting its limited fiscal contribution versus its transactional friction. [cite:NEWS1 original data]
Compliance Tightened, Not Tax Structure
While the core economic aspects of virtual digital asset taxation remain unchanged, Finance Minister Nirmala Sitharaman's Budget 2026 presentation introduced enhanced penalty provisions aimed at reinforcing compliance. Effective from April 1, 2026, a penalty of ₹200 per day will be levied for delays in furnishing VDA transaction statements. Furthermore, a fixed ₹50,000 fine is stipulated for instances involving inaccurate reporting or the failure to correct such inaccuracies. These measures signal a governmental focus on tightening regulatory oversight and ensuring adherence to Section 509 of the Income-tax Act, 2025, rather than providing immediate fiscal relief or structural adjustments for the crypto sector.
Industry Voices Call for Rationalization
Crypto industry leaders have expressed significant disappointment with the budget's unchanged tax stance, arguing it impedes market participation and India's competitiveness. Nischal Shetty, founder of WazirX, characterized the continuation of the existing regime as a "key friction point for users and the ecosystem," directly impacting liquidity and India's standing in the global digital asset space. [cite:NEWS1 original quote] Ashish Singhal, co-founder of CoinSwitch, acknowledged the introduction of penalty provisions as a "positive milestone" for formalizing compliance standards. However, he cautioned that the current tax structure risks driving Indian capital and talent toward offshore platforms, emphasizing the need for economic rationalization to retain innovation domestically.
Blockchain's Role in India's Deep-Tech Ambitions
Beyond virtual digital assets, the Budget 2026 underscores a broader governmental commitment to fostering emerging technologies, notably through allocations for the IndiaAI Mission and deep-tech innovation initiatives. Vikram Subburaj, CEO of Giottus, suggested that blockchain technology can be viewed as an integral component of this deep-tech ecosystem. He posited that the sector's long-term growth will be more profoundly influenced by sustained enablement through enhanced domestic research and development, the cultivation of deeper talent pipelines, and the development of robust infrastructure for regulated, India-first use cases. This perspective frames the crypto sector's future enablement as a function of foundational technological advancement rather than immediate market reactions to tax policies.
Global Context and Historical Precedent
The Union Budget's stable approach to VDA taxation offers a predictable framework for India's maturing crypto ecosystem, though some argue it risks falling behind global advancements. Raj Karkara, COO of ZebPay, highlighted the critical need for India to align with evolving international policy shifts as digital assets and tokenization gain momentum worldwide. Many Western jurisdictions are actively integrating cryptocurrencies into their broader financial infrastructures, creating a competitive global environment where rigid domestic tax policies can disadvantage local entities. Historically, India's imposition of stringent crypto taxation has prompted similar discussions concerning capital flight and the challenges of retaining domestic trading volume and innovation. Analysts suggest that while compliance is essential, a more harmonized and competitive tax environment is necessary to anchor burgeoning digital asset innovation and investment within India's borders.
